United States Department of Agriculture Forest Service Pacific Northwest Research Station Research Paper PNW-RP-534 March 2002 Global Effects of Accelerated Tariff Liberalization in the Forest Products Sector to 2010 Shushuai Zhu, Joseph Buongiorno, and David J. Brooks
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United StatesDepartment ofAgriculture
Forest Service
Pacific NorthwestResearch Station
Research PaperPNW-RP-534March 2002
Global Effects of AcceleratedTariff Liberalization in the ForestProducts Sector to 2010Shushuai Zhu, Joseph Buongiorno, and David J. Brooks
Shushuai Zhu is a graduate student and Joseph Buongiorno is John N. McGovernprofessor, Department of Forest Ecology and Management, University of Wisconsin,Madison, 1630 Linden Drive, Madison, WI 53706; David J. Brooks is a researchforester, U.S. Department of Agriculture, Forest Service, Pacific Northwest ResearchStation, Forestry Science Laboratory, 3200 SW Jefferson Way, Corvallis, OR 97331.
Authors
Abstract Zhu, Shushuai; Buongiorno, Joseph; Brooks, David J. 2002. Global effects ofaccelerated tariff liberalization in the forest products sector to 2010. Res. Pap. PNW-RP-534. Portland, OR: U.S. Department of Agriculture, Forest Service, PacificNorthwest Research Station. 51 p.
This study projects the effects of tariff elimination on the world sector. Projections weredone for two scenarios: (1) progressive tariff elimination according to the scheduleagreed to under the current General Agreement on Tariff or Trade (GATT) and (2) completeelimination of tariff on wood products as proposed within the Asia-Pacific EconomicCooperation (APEC) Accelerated Tariff Liberalization (ATL) initiative. Projections weremade by using the global forest products model, which provides equilibrium projectionsof prices and quantities produced, consumed, and traded for 14 commodity groups. Keyassumptions include rates of economic growth, availability of wood, demand (price)elasticities, and tariff scenarios.
The objective of this study was to project the effects of elimination of import tariffs onthe world forest sector. The projections are done for two scenarios: (1) progressive tariffreduction according to the current General Agreement on Tariff or Trade schedule and (2)complete elimination of all tariffs within the Asia-Pacific Economic Cooperationcountries.
The projections were obtained with the global forest product model (GFPM). The modelgives market equilibrium projections of quantities produced, consumed, imported, andexported by each country for 14 commodity groups including fuelwood, industrialroundwood, pulp and recycled fibers, and paper and paperboard. The model also projectsworld equilibrium prices, up to 2010. Key assumptions include rates of economic growth,availability of wood, demand elasticities, and scenarios for tariff reduction.
This report introduces the problem and objective of this study; summarizes the structureof the GFPM and its assumptions; presents the trends in consumption and net tradefrom 1997 to 2010, by main world regions, under the Accelerated Tariff Liberalization(ATL) scenario; and shows the effects of ATL agreements on consumption, production,import, and export from 1997 to 2010, for main world regions and the United States.Detailed tables by country and product are in the appendixes(http://www.fs.fed.us/pnw/pubs/rp534).
Summary
Contents 1 Introduction
2 Methods
2 Model Structure
4 Countries and Products
4 Final Demand
6 Raw Material Supply
12 Intermediate Product Supply and Demand
12 Assumptions on Accelerated Tariff Liberalization
20 Other Assumptions
20 Mathematical Formulation of Global Forest Product Model
23 Projections with Accelerated Tariff Liberalization, 1997-2010
24 Roundwood
24 Fuelwood and Charcoal
25 Industrial Roundwood
26 Sawnwood
36 Paper and Paperboard
40 Price Trends with Accelerated Tariff Liberalization
42 Effects of Accelerated Tariff Liberalization Agreement, 1997-2010
49 Consumption
49 Production
49 Imports
49 Exports
50 Acknowledgments
50 English Equivalents
51 Literature Cited
Appendixes are available online (www.fs.fed.us/pnw/pubs/rp534)
Appendix 1: Consumption Effects of Accelerated Tariff LiberalizationAgreement, 1997-2010
Appendix 2: Production Effects of Accelerated Tariff Liberalization Agreement,1997-2010
Appendix 3: Import Effects of Accelerated Tariff Liberalization Agreement,1997-2010
Appendix 4: Export Effects of Accelerated Tariff Liberalization Agreement,1997-2010
The United States sought elimination of all tariffs in the forest products sector during theUruguay Round. The round resulted in a reciprocal “zero-for-zero” tariff elimination agreementbetween the United States, Canada, Finland, Austria, Singapore, Hong-Kong, Japan,European Union (E.U.), Korea, and New Zealand for paper products by 2004. At the sametime, there was agreement to reduce, over 5 years, tariffs on wood products. In theUnited States, such reductions amounted to a cut in average tariffs from about 3.1 to 1.8percent. Under the Uruguay Agreement Act, Congress gave the Administration authority toseek reduction in tariffs on other wood products (Council on Environment Quality 1999).
In 1997, ministers of Asia-Pacific Economic Cooperation (APEC) countries called for thenomination of sectors for early voluntary sectoral liberalization (EVSL) among theircountries. The United States, Canada, Indonesia, and New Zealand proposed the forestsector. In 1998, APEC leaders agreed to move the tariff portion of the EVSL initiative tothe World Trade Organization, to conclude an agreement by the end of 1999.
Tariffs remain a significant barrier to trade for forest products (Bourke and Leitch 1998).Although tariffs in countries that are members of the Organization for EconomicCooperation and Development are generally low, they remain high for some products; forexample, wood-based panels. In other countries, tariffs between 10 and 20 percent arecommon and can reach 40 percent.
The Accelerated Tariff Liberalization (ATL) initiative covers all forest products, such aslogs and wood products (chapter 44), pulp, paper, and paper products (chapters 47, 48,and 49). Parties to the Uruguay Round zero-for-zero agreement would move up theelimination of tariffs on pulp, paper, and paper products from 1 January 2004 to 1January 2000. Others would attempt to remove tariffs by the same date but could delayremoval until 1 January 2002. The proposal calls for the elimination of tariffs on all otherproducts by 1 January 2002.
The objective of this study was to project the effects of the ATL agreement for the globalforest sector in general, and for the APEC countries in particular. For each country and14 forest groups of forest products, we project consumption, production, imports, exports,and prices. The projections are to 2010, for two scenarios: (1) continuation of the currenttariff agreements or (2) elimination of tariffs according to the ATL schedule.
The methods use a dynamic spatial equilibrium model of the world forest sector. Themodel was applied to project forest product consumption, production, trade, and pricesunder specific scenarios of economic growth, timber supply, and technical change. Theseassumptions are held constant in the simulations of the alternative ATL scenarios tojudge the effect of the tariff reductions only.
This report reviews the methodology of the global forest products model (GFPM) anddescribes the countries or regions and the products included in the model, the demandequations, and the timber supply assumptions. Projections from 1997 to 2010 of con-sumption, net trade, and prices in the main regions of the world are summarized; and theATL effects of consumption, production, import, and export for the main regions of theworld and the United States for the main product groups are presented. The appendixes1
contain the detail of trends and ATL effects for individual APEC countries.
Introduction
1
1 The appendixes are available on the web at:http:www.fs.fed.us/pnw/pubs/rp534
Projections of the effects of the ATL agreement were obtained with the GFPM. TheGFPM is based on the price endogenous linear programming system (PELPS III)(Zhang et al. 1993), with recent modifications. The model simulates market equilibriumby mathematical programming. The theory is that of spatial equilibrium in competitivemarkets. The GFPM solves the equilibrium by maximizing the value of the products,minus the cost of production, subject to material balance and capacity constraints ineach country and each year. Because material flows throughout the system mustbalance, the model ensures data consistency within countries and coherence ofprojections between countries.
In each projection year, for each country and commodity, supply (domestic productionplus imports) equals demand (final consumption, plus input in other processes, plusexports). Final demand is price responsive; demand for wood or intermediate productsderives from the demand for final products through input-output coefficients thatdescribe technologies in each country. The supply of raw wood and nonwood fibers ineach country is price responsive. The supply of recycled paper is constrained by thewaste paper supply, which itself depends on the paper consumption and the recyclingrate. Each country exports to the world market and imports from the world market.Projected prices are such that they clear markets: at those prices, demand equalssupply in each country.
From one year to the next, demand changes in each country because of changes inincome. The wood supply shifts according to the chosen scenario. The amount ofrecycled fiber used for making paper and paperboard changes with technology andrecycling policy. Capacity increases or decreases according to new investments thatdepend on past production and the profitability of production in different countries, asrevealed by the shadow price of capacity. Tariff changes affect the cost of imports, advalorem. Then, a new equilibrium is computed subject to the new demand and supplyconditions, new technology, new capacity, and new tariff. Trade changes with inertia tiedto past trade and production.
The general principle of the GFPM, then, is that global markets optimize the allocationof resources in the short run (within 1 year). Longrun resource allocation is partlygoverned by market forces, as in capacity expansion and trade, and also by politicalforces such as the wood supply shifts determined by forest policy, the waste paperrecovery rates by environmental policy, the trade tariffs that change the cost of imports,and the techniques of production determined by exogenous progress.
Earlier versions of PELPS and GFPM have been used by the United States andCanadian Forest Services to develop the North American pulp and paper model and thesolid wood model, and by the International Tropical Timber Organization to develop theAsia-Pacific tropical timber trade model. The Asia-Pacific forest products model (Zhanget al. 1997) also was built with PELPS, and the Food and Agricultural Organization (FAO1999) forest products outlook study included GFPM-based projections (Zhu et al. 1998).
MethodsModel Structure
2
Code in Code in Code in Code inmodel Country model Country model Country model Country
Herzegovina5 Burkina Faso 5 Cayman Islands 5 Brunei Darussalam 5 Bulgaria6 Burundi 6 Costa Rica 6 Cambodia 6 Croatia7 Cameroon 7 Cuba 7 China 7 Czech Republic8 Cape Verde 8 Dominica 8 Cyprus 8 Denmark9 Central African 9 Dominican 9 Hong Kong 9 Finland
Republic Republic10 Chad 10 El Salvador 10 India 10 France11 Congo 11 Guatemala 11 Indonesia 11 Germany12 Côte d’Ivoire 12 Haiti 12 Iran, Islamic 12 Greece
Antilles18 Gambia 18 Nicaragua 18 Korea, REP 18 Malta19 Ghana 19 Panama 19 Kuwait 19 Netherlands20 Guinea 20 Saint Vincent 20 Laos 20 Norway21 Guinea-Bissau 21 Trinidad and 21 Lebanon 21 Poland
Tobago22 Kenya 22 United States 22 Macau 22 Portugal23 Lesotho 23 Malaysia 23 Romania24 Liberia 23 South America: 24 Mongolia 24 Slovakia25 Libyan Arab 24 Argentina 25 Myanmar 25 Slovenia
Jamahiriya26 Madagascar 25 Bolivia 26 Nepal 26 Spain27 Malawi 26 Brazil 27 Oman 27 Sweden28 Mali 27 Chile 28 Pakistan 28 Switzerland29 Mauritania 28 Colombia 29 Philippines 29 United Kingdom30 Mauritius 29 Ecuador 30 Qatar 30 Yugoslav Fed.
Rep.31 Morocco 30 French Guiana 31 Saudi Arabia32 Mozambique 31 Guyana 32 Singapore 31 Former U.S.S.R:33 Niger 32 Paraguay 33 Sri Lanka 32 Armenia34 Nigeria 33 Peru 34 Syrian Arab 33 Azerbaijan
Republic35 Reunion 34 Suriname 35 Thailand 34 Belarus36 Rwanda 35 Uruguay 36 Turkey 35 Estonia37 Sao Tome and Venezuela 37 United Arab 36 Georgia
Principe Emirates38 Senegal 38 Viet Nam 37 Kazakhstan39 Sierra Leone 39 Yemen 38 Kyrgyzstan40 Somalia 39 Latvia
Table 1—Countries in the global forest products modela
3
Table 1—Countries in the global forest products modela (continued)
Code in Code in Code in Code inmodel Country model Country model Country model Country
Africa continued: Oceania: Former U.S.S.R.continued:
41 South Africa 40 Australia 40 Lithuania42 Sudan 41 Cook Island 41 Moldova, Rep.43 Swaziland 42 Fiji 42 Russian
Federation44 Tanzania, United 43 French Polynesia 43 Tajikistan
Republic45 Togo 44 New Caledonia 44 Turkmenistan46 Tunisia 45 New Zealand 45 Ukraine47 Uganda 46 Papua New Guinea Uzbekistan48 Zaire 47 Samoa49 Zambia 48 Soloman Islands50 Zimbabwe 49 Tonga
50 Vanuatua Region names are for this study only.
The GFPM deals with 180 countries (see table 1). Each country may produce and tradeone or all of the products. This level of resolution was chosen to facilitate data verifica-tion, as most international data are collected at country level. Calculating projections bycountry also facilitates review and criticism of the projections because expert knowledgeis more available at the country level than at more aggregate regional or global levels.The list of countries in table 1 is the same as that used by FAO (1998a), and it uses thesame nomenclature.
The forest products considered in the GFPM are shown in table 2. They correspond toproduct groups used by the FAO (1998a) in its statistical work. In the GFPM, there areeconometric demand equations for fuelwood and charcoal, other industrial roundwood,sawnwood, veneer sheets and plywood, particle board, fiberboard, newsprint, printingand writing paper, and other paper and paperboard. The supply equations for fuelwoodand charcoal, industrial roundwood, and other fiber pulp are price elastic, up to themaximum sustainable production, which is set exogenously. Waste paper supply isconstrained by the quantity of paper recovered, an endogenous function of paperconsumption. Figure 1 shows the wood and nonwood material flows.
The demand equations for the end products (table 3) are based on derived demandtheory for raw material inputs. Dynamic demand models lead then to empirical elasticitiesof demand for each forest product in relation to national income (measured by real grossdomestic product [GDP]) and real product price, in constant U.S. dollars (Baudin andLundberg 1987, Buongiorno 1978).
The elasticities of demand used in analyzing the effects of ATL are shown in table 3.Different elasticities were used for countries with high or low GDP per person. Elasticitiesfor low-income countries were generally larger in absolute value.
The world price for each commodity in the base year (1997) was the weighted averageof unit values of imports and exports, across all countries. In the GFPM, prices are
Countries and Products
Final Demand
4
SITC code Product Unit Demand Supply
245 Fuelwood and charcoal 1000 m3 E E246/247 Sawlogs and pulpwood 1000 m3 I E
Other industrial roundwood 1000 m3 E E248 Sawnwood 1000 m3 E I634.1,634.3/4 Veneer and Plywood 1000 m3 E I634.2 Particle board 1000 m3 E I634.5 Fiberboard 1000 m3 E I251.2 Mechanical wood pulp 1000 M.T. I I251.91,.61,.62,.3,.4,.5 Chem/semichem. wood pulp 1000 M.T. I I251.92 Other fiber pulp 1000 M.T. I E251.1 Waste paper 1000 M.T. I E641.1 Newsprint 1000 M.T. E I641.2/3 Printing and writing paper 1000 M.T. E IEX641 Other paper and paperboard 1000 M.T. E I
a E indicates demand or supply is represented with an econometric equation; I indicates that itis represented with input-output coefficients.M.T. = metric ton.
Table 2—Products in the global forest products modela
endogenous (the equilibrium between demand and supply leads to the prices). So, noassumption has to be made about future prices.
The data on production, imports, and exports in each country and in the base year (1997)were obtained from the FAO statistical database (FAO 1999).
The GDP data are exogenous to the GFPM and nothing else is used to shift demand.The assumptions on the GDP growth rate of each country and the implications for theregions are summarized in table 4. Real GDP was assumed to grow at about 4 percentper year from 1994 to 2010 in Africa, at 2.7 percent per year in America, 4.6 percent peryear in Asia, and 2.4 percent per year in Europe.
Figure 1—Product transformations in the global forest products model.
5
Product Country Price Income
Fuelwood and charcoalHigh incomea -0.62 -2.26Low incomeb -.10 .40
Other industrial roundwoodHigh income -.05 -.58Low income -.37 .19
SawnwoodHigh income -.16 .32Low income -.21 .46
Veneer and plywoodHigh income -.13 .73Low income -.22 .74
Particle boardHigh income -.24 1.15Low income -.05 .65
FiberboardHigh income -.52 .82Low income -.52 .82
NewsprintHigh income -.05 1.14Low income -.18 1.05
Printing and writing paperHigh income -.15 1.66Low income -.37 1.11
Other paper and paperboardHigh income -.06 .94Low income -.14 .92
a Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland,Israel, Italy, Japan, Kuwait, Luxembourg, Netherlands, Norway, New Zealand, South Africa,Spain, Sweden, Switzerland, United Kingdom, and United States.b Rest of the world.
Table 3—Price and income elasticities of demand for end products
In any given year and country, the supply of industrial roundwood is a function of theprice of industrial roundwood. The price elasticity of supply was set at 0.8. This priceelasticity indicates the percentage of change in supply that would result from a 1-percentchange in price, other things being equal.
In addition, the supply equations are assumed to shift over time to simulate changes insupply independent of prices. The rates of shifts were estimates of how much timberproduction would change without a change in price. These rates of shift differ by countryand are based on various information about past production, forest area and stock,growth rates, extent of plantations, and policies of each country. In some countries ofAsia, upper bounds were set on the timber supply, regardless of price, to reflectperceived limits on the potential sustainable timber production of the country. The rate ofshifts relied mostly on the data of the global fiber supply study (GFSS, FAO 1998b); therate of shift is the annual percentage change in the “commercially available wood supply”projected by the GFSS. The resulting aggregate average rates of shift of industrial round-wood supply, by region, were 0.71 percent in North, Central, and South America, 0.63percent in Europe and the former U.S.S.R., 1.14 percent in Africa, and 1.4 percent in Asiaand Oceania. The detailed rates of shift used in the ATL analysis are shown in table 5.
Supply curves for fuelwood and charcoal had the same elasticities and rates of shifts asthose for industrial roundwood. For industrial roundwood used in the round (otherindustrial roundwood), the supply curves were assumed to be horizontal so that supplyin each country was equal to the projected demand, at current prices and projectedincome. This simplification is legitimate because the world trade of this product is small.
The supply of other fiber pulp (from straw, bagasse, etc.) had the same price elasticityas industrial roundwood, 0.8, and a shift rate of 3 percent per year in China (the mainsupplier of other fiber pulp) and 4 percent per year in other countries. The supply ofwaste paper was assumed to be horizontal, with an upper bound defined by the previousyear’s consumption and the maximum recycling rate for the country.
10
Table 5—Roundwood supply shift rate, 1997-2010
Percent Percent Percent PercentCountry per year Country per year Country per year Country per year
Africa: 1.14 America: 0.71 Asia Pacific: 1.43 Europe and U.S.S.R.: 0.63Algeria 0.00 North and Central Asia— Europe—
America:Angola 0.42 Bahamas 0.00 Afghanistan 0.50 Albania -1.25Benin 0.00 Barbados 0.00 Bahrain 0.50 Austria 0.53Botswana 0.00 Belize 0.30 Bangladesh -0.80 Belgium 0.00Burkina Faso 0.00 Canada 0.60 Bhutan 0.56 Bosnia-Herz. 0.00Burundi 0.00 Cayman Islands 0.00 Brunei -0.07 Bulgaria 1.55Cameroon 1.35 Costa Rica -1.95 Cambodia 0.26 Croatia 2.26Cape Verde 0.00 Cuba -0.16 China 1.15 Czech Rep. 0.27Central Af. Rep. 0.55 Dominica 0.00 Cyprus 0.50 Denmark 0.65Chad 0.00 Dominican Rep. -1.39 Hong Kong 0.00 Finland 0.94Congo 2.00 El Salvador 3.72 India 2.54 France 0.78Côte d’Ivoire -0.30 Guatemala -1.68 Indonesia 2.13 Germany 0.15Djibouti 0.00 Haiti 0.00 Iran 0.50 Greece 0.00Egypt 0.00 Honduras -2.03 Iraq 0.50 Hungary 0.69Equatorial Guinea -0.18 Jamaica 0.00 Israel 0.50 Iceland 0.00Ethiopia 0.00 Martinique 0.00 Japan 1.52 Ireland 3.49Gabon -0.03 Mexico -0.12 Jordan 0.50 Italy 0.24Gambia 0.00 Netherlands Antil. 0.00 Korea, DPR 0.67 Macedonia 0.00Ghana -0.94 Nicaragua -1.99 Korea, Rep. 2.21 Malta 0.00Guinea -0.99 Panama -1.67 Kuwait 0.00 Netherlands 0.52Guinea Bissau 0.32 Saint Vincent 0.00 Laos 1.37 Norway 1.24Kenya 3.14 Trinidad &Tobago 0.00 Lebanon 0.50 Poland 0.09Lesotho 0.00 United States 0.60 Macau 0.50 Portugal 0.53Liberia -0.26 Malaysia -1.09 Romania 0.00Libyan Arab Jam. 0.00 South America: Mongolia -0.70 Slovakia 0.36Madagascar -0.72 Argentina 2.98 Myanmar 0.86 Slovenia 0.77Malawi 10.07 Bolivia 1.00 Nepal 1.32 Spain 1.03Mali 0.00 Brazil 1.34 Oman 0.00 Sweden 0.63Mauritania 0.00 Chile 1.69 Pakistan 1.49 Switzerland 0.46Mauritius 0.00 Colombia 0.53 Philippines 1.80 United Kingd 2.21Morocco 1.69 Ecuador -0.73 Qatar 0.50 Yugoslav FR 0.00Mozambique 0.00 French Guiana 1.82 Saudi Arabia 0.50Niger 0.00 Guyana 0.56 Singapore 0.00 Former U.S.S.R.:Nigeria -0.69 Paraguay -1.69 Sri Lanka 1.29 Armenia 0.20Reunion 0.00 Peru 0.61 Syrian Arab Rep 0.50 Azerbaijan 0.20Rwanda 0.00 Suriname 1.53 Thailand -0.06 Belarus 2.10Sao Tome and Pr. 0.00 Uruguay 2.36 Turkey 0.50 Estonia 2.79Senegal 0.00 Venezuela 0.10 Un. Arab Em. 0.00 Georgia 0.20Sierra Leone -2.60 Vietnam 3.03 Kazakhstan 0.20Somalia 0.00 Yemen, Rep. 0.50 Kyrgyzstan 0.20South Africa 2.02 Latvia 1.41Sudan -0.59 Oceania— Lithuania 2.18Swaziland 3.00 Australia 1.02 Moldova Rep 2.10Tanzania, U. Rep. 4.20 Cook Is -1.79 Russian Fed 0.20Togo 0.00 Fiji 8.33 Tajikistan 0.20Tunisia 3.00 French Polyn. 0.00 Turkmenistan 0.20Uganda 3.50 New Caledon. 0.50 Ukraine 2.10Zaire 0.57 New Zealand 3.80 Uzbekistan 0.20Zambia 1.51 Papua New Guinea 3.84Zimbabwe 4.45 Samoa 0.00
Solomon Is 3.00Tonga 0.50Vanuatu 3.19
11
The GFPM simulates the transformation, in each country, of wood and other rawmaterials (other fiber pulp and waste paper) into end products (sawnwood and panels),or intermediate products (pulps), which are in turn transformed into end products(papers). These successive transformations, and the attendant supplies and demands,are represented by activity analysis.
The corresponding input-output coefficients were estimated for the base year (1997). Theestimation procedure was such that the implied consumption, production, and trade ofall products were as close as possible to the national statistics, as reported in FAO(1999), whereas the input-output coefficients stayed within a plausible range, given priorknowledge of the technology. For example, the total amount of pulp and other fibersconsumed per ton of paper had to be close to unity.
Each production activity represented with input-output coefficients corresponds to amanufacturing cost. This is the cost of all inputs (capital, wages, energy, etc.), excludingthe cost of raw materials explicit in the model. This cost was estimated in the base year(1997) as the unit value of the output, minus the cost of all inputs, at world prices.
Similarly, all the supply curves for raw materials and the demand curves for end productswere calibrated to supply or demand the amounts observed in each country at worldprice. Because the calibration is made at world import price, the supply curves andmanufacturing costs include the cost of transportation, which is therefore set at zero forall trade flows in the base year.
Calibrated in this way, the solution of the model in the base year is almost identical tothe observed quantities and corresponding prices for all products and countries.
In the GFPM, a change in tariff is equivalent to a change in transport cost for importedcommodities. Most tariffs are ad valorem, so the effect of a change in tariff changeswith the price level. For technical reasons, the new tariff is based on last year’s worldprice, computed by the spatial equilibrium mechanism.
Two scenarios were implemented: (1) a base scenario, analog to the continuation ofcurrent agreements (2) and an ATL scenario to simulate the accelerated removal oftariffs. The details of the tariff reductions assumed in the two scenarios are shown intable 6.
Base scenario—According to Barbier (1996), because of the Uruguay Round of globalagreement on trade and tariffs (GATT), major developed countries were committed toreducing tariffs by 50 percent on solid wood products over 5 years starting in 1995, andcompletely phasing out tariffs on pulp and paper by 2004.
For this study, we had data on tariffs in 1997. For solid wood products (fuelwood,industrial roundwood, sawnwood, veneer and plywood, particle board, and fiberboard),we assumed that tariffs had been reduced by one-sixth from 1995 to 1997, and that theywould be reduced further by one-sixth each year in 1998 and 1999. For pulp (mechanicalpulp, chemical pulp, other fiber pulp, and waste paper) and paper (newsprint, printing andwriting paper, other paper, and paperboard), we reduced 1997 tariffs by one-seventheach year from 1998 onwards, thereby leading to total tariff elimination by 2004.
a Each country of the European Union is treated individually: Austria, Belgium-Luxembourg, Denmark, Finland, France,Germany, Greece, Ireland, Italy, Netherlands, Portugal, Spain, Sweden, and United Kingdom.
Accelerated tariff liberalization scenario—Under the ATL scenario, tariffs are thesame as in the base scenario for 1998 and 1999. Beginning in 2000, the tariffs would beeliminated for all commodities.
There are 180 countries in the GFPM. Changes in tariffs corresponding to each scenariowere assumed only for the countries listed below (For other countries, it was assumedthat there would be no change):
• America:Canada, Mexico, United States, Brazil, and Chile
• Asia and Oceania:Brunei, China, Japan, Hong Kong, Indonesia, Korea, Malaysia, Philippines,Singapore, Thailand; Australia, New Zealand, and Papua New Guinea
• European Union:Austria, Belgium-Luxembourg, Denmark, Finland, France, Germany, Greece,Ireland, Italy, Netherlands, Portugal, Spain, Sweden, and United Kingdom
Thus, it was assumed that forest products would be traded more freely worldwidebetween 1997 and 2010 in response to market responses to the tariff cuts. Theadjustment of trade flows between countries or regions, however, will likely take time,thus inertia constraints were introduced to limit yearly trade changes to be within aspecified fraction of the previous year’s net supply (i.e., domestic supply plus imports,
19
also equal to domestic consumption plus exports). As detailed in the appendixes (seefootnote 1), this is an extension of earlier trade inertia constraints (Buongiorno andGilless 1984, Kallio et al. 1987, Zhang et al. 1997), meant to recognize the effect of thesize of the domestic market on trade (Devarajan et al. 1997).
Other assumptions governing the projected effects of the ATL agreement related tochanges in capacity, fiber input mix, and trade inertia. In the GFPM, capacity changesare endogenous. They depend on changes in past production and on relative profitabilityof additional capacity in different countries. Capacity data for the base year, 1997, wereestimated from the production data. Thereafter, global capacity growth is predicted with adistributed-lag function linking capacity change to changes in past production. Then,global capacity growth is allocated to different countries according to the shadow price(the marginal value of one unit of additional capacity) revealed by the equilibriumcomputations (Gilless and Buongiorno 1987, Zhang et al. 1993).
The technology, defined by input-output coefficients and associated manufacturingcosts, was held constant at the 1997 level, except for paper and paperboard. For paperand paperboard, it was assumed that the amount of recycled paper used in newsprint,printing and writing paper, and paper and paperboard would increase gradually between1997 and 2010 to reach levels predicted by other studies (Ince 1994, Mabee 1998).
The GFPM simulates dynamic market equilibrium for the global forest sector. Everyyear, demand, supply, trade, and prices are computed that clear markets for all productsand in all regions (static phase). Then, the model parameters are updated to reflectexogenous and endogenous changes from one year to the next (dynamic phase).Exogenous changes include economic growth, technical change, potential timbersupply, and trade inertia; they are assumptions. Endogenous changes include capacitygrowth and availability of recycled fibers; they are determined by the model. The modelthen computes the quantity-price equilibrium next year as shaped by the interveningchanges. It reiterates the static and dynamic phases for every year until the end of theprojection.
Static phase—The equilibrium for each year of the projection is obtained with anoptimization model that simulates world markets. It finds the production, consumption,and trade that maximize the total value of consumption minus the total cost ofproduction and transport, for all products in all countries, in a given year. All thevariables refer to that year. Objective function:
max Z = ΣΣ Pik (Dik)dDik - ΣΣ Pik (Sik)dSik - ΣΣYikmik - ΣΣΣ cjkTijk , (1)
where
i,j = country;k = product;P = price in U.S. $;D = final product demand;S = raw material supply;
Other Assumptions
MathematicalFormulation of GlobalForest Product Model
Dik
0ki
Sik
ki ki ki j
20
0
Y = quantity manufactured;m = cost of manufacture;T = quantity transported. In this version of the model, each country exports to the worldmarket and imports from the world market; andc = cost of transportation, including tariff.
Demand for final products:
Dik = aikPik
σ ik Xi
αik Dik,-1ηik , (2)
where
D-1 = demand in the previous year;
X = gross domestic product, in real U.S. $;σ,α,η = elasticities with respect to price, GDP, and past demand.
Wood supply and nonwood fiber supply:
Pik = Pik0
Sik < SikU
, (3)
where
P0 = cost of production, andSu = potential supply.
Material balance:
(4)
where
aikn
= input of commodity k per unit of n, andTu,TL = upper and lower bounds on imports and exports.
Price:The market-clearing price is the shadow price of the material balance constraint (4).
Manufacturing capacity:
(5)
21
Σ Tjik+Sik+Yik- Dik - ΣaiknYin- ΣTjik = 0 i,kj n j
Tjik < Tijk < TikL u i,j,k ,
Yik < Kik i,k ,
where
K = current capacity of production.
Waste paper recovery:
(6)
where
r = recycled paper, andSU = upper bound on recycled paper supply.
Dynamic phase—Yearly changes in the market equilibrium conditions are brought about by:
• Shifts of the demand curves, due to changes in X at the projected GDP growth rate.
• Shifts of the upper bounds on wood supply, S, at the assumed rate of growth ofpotential supply.
• Changes of manufacturing coefficients m to reflect technical change, especiallyincreasing use of paper recycling.
• Changes of capacity, determined as follows:
At global level, capacity change is a function of changes in production during the past 3years:
(7)
then, global capacity change is allocated to each country in proportion of its productionlevel and the marginal value of capacity revealed by the shadow price of capacity in thestatic phase.
(8)
where
∆ = yearly change, and
π = shadow price of capacity (endogenous, from constraint (5).
• Changes in waste paper recovery:
22
Sir < Sir i,r ,U
∆Kk = b1k∆Yk,-1 + b2k∆Yk,-2 + b3k∆Yk,-3 ,
∆Kik = ∆Kk ,Yik π
ΣYik πj
(9)
where
wikr
= maximum possible recovery rate (exogenous).
• Changes in tariff:
(10)
where
t = the ad valorem tariff rate, in percentage.
• Trade inertia:
(11)
where
ε = the absolute value of the maximum yearly change in the ratio of import or export tonet supply (exogenous).
The outlook presented here corresponds to the scenario with ATL. The purpose is tocompare the projections from 1997 to 2010 with past trends from 1965 to 1997. Thedetailed projections under this scenario are in appendixes 1 through 4 (see footnote 1),where they also are compared to projections without the ATL (see also “The Effects ofTariff Liberalization, 1997-2001”).
The global forest sector has expanded greatly during the last three decades, and overalltrends show a rising production, domestic consumption, and trade. In most parts of theworld, the major measurable factors affecting consumption of forest products are generaleconomic growth and prices. Many other influences, however, are relevant and reflectedindirectly by the GDP and price elasticities: level of residential investment, technical andeconomic competitiveness of sawnwood and panels in the building sector, developmentin electronic media, competitiveness of paper and paperboard for packaging, forexample.
Total consumption of roundwood in the world has increased almost 50 percent between1961 and 1997, from 2.2 billion m3 to nearly 3.4 billion m3. The projections show that theworld demand for wood will continue to rise, especially in Asia where rapidly growingeconomies are concentrated (fig. 2). According to the projections, the world total round-wood consumption would reach 3.6 billion m3 by 2000 and 4.4 billion m3 by 2010, anincrease of 8 percent and 29 percent, respectively, from the 1997 level. In 1997, Asiaand Europe were net importers of roundwood. By 2010, the projections show that allregions will retain their trading status, but North and Central America will become netimporter (fig. 3). This reflects, in part, the effects of timber harvest restrictionsimplemented in the United States.
The world total consumption of fuelwood and charcoal increased 61 percent from 1billion m3 in 1965 to about 1.8 billion m3 in 1997. The projections show that the worlddemand for fuelwood and charcoal will continue to rise, especially in Asia and Africa
Figure 3—Net trade of roundwood.
Figure 2—Consumption of roundwood.
Fuelwood and Charcoal
24
Roundwood
(fig. 4). Growth would occur however, at a slower rate than in the past decade, in allregions. In North and Central America, Oceania, and Europe, fuelwood consumption isexpected to decrease slightly in the next 13 years.
Between 1965 and 1997, because of moderate growth in population and rapid growth inthe economy, world consumption of industrial roundwood has shown sustainedincreases. Total consumption was about 1523 million m3 in 1997, about one-third abovethe 1965 level. According to the projections, the world industrial roundwood consumptionwould reach 2039 million m3 by 2010, an increase of 34 percent from the 1997 level(fig. 5). Because of the regional imbalance between production and consumption, therewould be an increase in trade. The trade deficit of Asia would increase from 56 million in1997 to 68 million m3 in 2010, and the trade deficit of Europe would decrease slightly(fig. 6). Exports of South America are projected to almost double, whereas North andCentral America would become a net importer in 2010.
Figure 4—Consumption of fuelwood.
Figure 5—Consumption of industrial roundwood.
Industrial Roundwood
25
Figure 6—Net trade of industrial roundwood.
Figure 7—Consumption of sawnwood.
Sawnwood and sleepers (sawnwood in short) includes coniferous and nonconiferousspecies. The world sawnwood consumption rose slightly, from 383 million m3 in 1965 to441 million m3 in 1997. In 1990, it reached its peak, 508 million m3, and then droppedsharply until 1994 (fig. 7). This was largely due to the decrease in the consumption of theformer U.S.S.R, which consumed only about one-fourth of its 1990 consumption in 1994.From 1997 to 2010, global sawnwood consumption is projected to grow from 441 to 532million m3.
Sawnwood
26
Figure 9—Consumption of wood-based panels.
Figure 8—Net trade of sawnwood.
In 1997, the three net exporting regions were the former U.S.S.R., North and CentralAmerica, South America, and Oceania, respectively. They are projected to continue tobe net exporters by 2010 (fig. 8). By 2010, North and Central America is projected toincrease its surplus with 29 million m3 of net exports. Net exports of Oceania will almostdouble, whereas the former U.S.S.R. and South America would stay at about their 1997level. Symmetrically, the largest net importer is projected to continue to be Asia whosenet imports would reach 33 million m3 by 2010, followed by Africa at 5.5 million m3.
Wood-based panels—From 1965 to 1997, the demand for wood-based panels grewfaster than for any other forest product. World consumption went from 42 million m3 to154 million m3, with an average growth of 4.1 percent per year. The 1997 distribution ofthe world’s consumption by panel type was plywood and veneer, 40 percent; particleboard, 45 percent; and fiberboard, 15 percent. Wood-based panels consumption wasexpected to grow during the next 13 years to 231 million m3 in 2010 (fig. 9).
27
Figure 10—Net trade of wood-based panels.
Figure 11—Consumption of veneer and plywood.
From 1965 to 1993, Asia, the former U.S.S.R., and South America were net exporters,but Asia became a net importer after 1993. The projections are that by the year 2010,Europe and Oceania will become the largest and the second net exporters, respectively,whereas South America and the former U.S.S.R. would still be net exporters. Asia wouldbecome by far the largest net importer, reaching 5.8 million m3 by 2010, whereas Northand Central America would nearly balance its trade (fig. 10).
Veneer sheets and plywood—The world consumption of veneer sheets and plywoodincreased from 27 million m3 in 1965 to 60 million m3 in 1997. It is projected that worldconsumption would increase from 60 million m3 in 1997 to 89 million m3 in 2010, for anaverage annual growth rate of 3 percent (fig. 11). Although in 1997, Asia was the largestnet exporter and Europe the largest net importer, by 2010, South America is projected tobe the largest net exporter of plywood and veneer, and Europe would continue to be thelargest net importer (fig. 12).
28
Particle board—The world consumption of particle board grew fast, from 9 million m3 in1965 to 70 million m3 in 1997. Meanwhile, it is projected that the world particle boardconsumption would continue to increase to 105 million m3 in 2010 (fig. 13). Europeswitched from being the largest net importer of particle board in 1989 to the largest netexporter in 1994. In 1997, Asia was the largest net importer of particle board (fig. 14).The 2010 projections show Europe to still be the largest net exporter, at a slightly higherlevel than in 1997. Asia would continue to be the largest net importer, and its netimports of particle board would increase steadily, reaching 2224 thousand m3 by 2010.
Figure 12—Net trade of veneer and plywood.
Figure 13—Consumption of particle board.
29
Fiberboard—The world consumption of fiberboard increased from 6.4 million m3 in 1965to 23 million m3 in 1997. (Asia had the largest consumption of fiberboard amoung theregions.) The projections suggest that the world fiberboard consumption will continueincreasing from 23 million m3 in 1997 to 36 million m3 in 2010 (fig. 15). By 2010, Asia,North and Central America, and Europe will be the three main consuming regions, respec-tively. The net exporting regions in 1997 (South America, North and Central America,Oceania, Europe, and the former U.S.S.R.) are projected to still be net exporters in 2010(fig. 16). The main net importing region would still be Asia by 2010, its deficit in fiberboardtrade increasing to about 3918 thousand M.T. in 13 years.
Figure 15—Consumption of fiberboard.
Figure 14—Net trade of particle board.
30
Fiber furnish—Total fiber furnish includes all wood pulp, waste paper, and other fiberpulps. The world consumption of fiber furnish, which almost tripled from 1965 to 1997, isprojected to reach 490 million M.T. by 2010, from 289 million M.T. in 1997.
Wood pulp—Wood pulp includes mechanical pulp and chemical pulp. Wood pulpconsumption was expected to grow to 216 million m3 by 2010, from 158 million m3 in1997 (fig. 17). In 1997, Asia was the largest net importer and North and Central Americathe largest net exporter. The projections show the same rankings for 2010 (fig. 18).
Figure 16—Net trade of fiberboard.
Figure 17—Consumption of wood pulp.
31
Mechanical pulp—From 1997 to 2010, consumption of mechanical pulp is projected togrow fastest in Asia and Africa, and slower in other regions (fig. 19). Oceania, the largestnet exporter in 1997, would continue to expand its world market share and be the largestexporter by 2010 (fig. 20). North and Central America would be the second largest netexporter, and Europe would still be a small net exporter by 2010, with little change. Asiawould continue to be the major importer and would increase its net imports by 2010 toabout 980,000 M. T.
Figure 18—Net trade of wood pulp.
Figure 19—Consumption of mechanical wood pulp.
32
Figure 21—Consumption of chemical/semichemical wood pulp.
Figure 20—Net trade of mechanical wood pulp.
Chemical pulp—Chemical pulp consumption is projected to increase the most in Africaand Oceania, and least in North and Central America (fig. 21). North and Central Americawould remain the largest net exporter of chemical pulp, and Europe would exceed Asiato be the largest net importer (fig. 22). Net exports for South America are projected todecrease slowly until 2010.
33
Figure 22—Net trade of chemical/semichemical wood pulp.
Figure 23—Consumption of other fiber pulp.
Other fiber pulp—Figure 23 indicates that consumption of other fiber pulp hasincreased rapidly in Asia after 1984 because of large fiber needs caused by quickdevelopment in the economy and limited wood fibers of the region. Other fiber pulpconsumption in Asia is projected to approach 38 million M.T. by 2010, larger than thesum of mechanical and chemical pulp consumption.
34
Waste paper—According to the projection, consumption and production of wastepaperwould increase fast in Asia and South America (fig. 24). Asia would remain the largestnet importer, whereas North and Central America would remain the major net exporter.The projections suggest that exports from the region will continue to increase fast (fig.25). Net imports for Asia would increase by 50 percent by 2010. The net surplus ofEurope also would continue to increase steadily.
Figure 24—Consumption of wastepaper.
Figure 25—Net trade of wastepaper.
35
The paper and paperboard group includes newsprint, printing and writing paper, and otherpaper and paperboard. Figure 26 shows that according to projections, Asianconsumption would exceed that of North and Central America by 2000. This is dueessentially to the faster rate of GDP growth for Asia presumed in the scenario. Figure 26also shows the world consumption of paper and paperboard would be 500 million M.T. by2010, from 294 million M.T. in 1997. Figure 27 suggests that North and Central Americawould exceed Europe to become the largest net exporter of paper and paperboard by2010, reaching 15 million M.T. Net imports for Asia would almost double in 13 years.
Figure 26—Consumption of paper and paperboard.
Figure 27—Net trade of paper and paperboard.
Paper and Paperboard
36
Newsprint—The growth of newsprint consumption would be faster than that of the1990s in all regions, especially in Asia and the former U.S.S.R. (fig. 28). World newsprintconsumption would increase from 35 million M.T. in 1997 to 60 million tons in 2010. Thelargest net exporter would still be North and Central America, followed by the formerU.S.S.R. (fig. 29). Asia would remain the largest net importer and is projected toincrease its net imports by 37 percent from 1997 to 2010.
Figure 28—Consumption of newsprint.
Figure 29—Net trade of newsprint.
37
Printing and writing paper—Consumption of printing and writing paper is projected togrow fastest in the former U.S.S.R. and Oceania. World printing and writing paperconsumption would increase from 88 million M.T. in 1997 to 163 million M.T. in 2010,almost double in 13 years (fig. 30). The positions of Europe and South America as netexporters would strengthen, though net exports would grow at a slower rate. The tradedeficit in printing and writing paper in Asia would reach nearly 3.6 million M.T. in 2010(fig. 31).
Figure 30—Consumption of printing and writing paper.
Figure 31—Net trade of printing and writing paper.
38
Other paper and paperboard—Other paper and paperboard consumption is projectedto grow slower than printing and writing paper and newsprint. Asia would experience themost increase (fig. 32). World consumption other paper and paperboard would increasefrom 170 million M.T. in 1997 to 277 million M.T. in 2010. Asia would nearly double its netimports by 2010. Net exports from North and Central America would continue to growalmost linearly, whereas net exports from Europe would decrease to one-fifth of their1997 level (fig. 33).
Figure 32—Consumption of other paper and paperboard.
Figure 33—Net trade of other paper and paperboard.
39
In market economies, prices determine, in part, the demand and supply of forestproducts. Price levels are also critical in determining the feasibility of forestry andindustry projects. It is, therefore, useful that the method to predict consumption,production, and trade also gives projections of the market clearing prices.
Industrial roundwood and sawnwood—Figure 34 presents historical trends andprojections for industrial roundwood and sawnwood prices in 1997 U.S. $ at the worldlevel. Historically, the price of sawnwood paralleled the price of industrial roundwood,mainly because roundwood is a major part of the total cost of sawmilling, reaching ashigh as 60 to 70 percent. The projections show that the relation between the two priceswill remain strong over the next 13 years.
Figure 35—Real world prices of wood-based panels.
Figure 34—Real world prices of solid wood products.
Price Trends withAccelerated TariffLiberalization
40
The price projections suggest that the real price of industrial roundwood worldwide wouldincrease by $27 per m3 over the next decade, and would rise to about $130 per m3 by2010. Because of the rising price of raw material, the price of sawnwood would increaseby $50 per m3. The price of sawnwood is projected to reach about $300 per m3 in 2010.
Wood-based panels—The price for wood-based panels fell between 1965 and 1997, asshown in figure 35. This steady fall in price was made possible mostly by a reduction incosts of production (new processes, economies of scale, cheaper raw material fromsawmill residues, for example). Among all panel products, the real price of veneer andplywood declined more than that of particle board or fiberboard.
The projections show that the real prices of veneer and plywood, particle board, andfiberboard should increase slightly during the next 13 years, almost in parallel with theincreasing price of industrial roundwood (fig. 34).
Paper and paperboard—For the pulp and paper sector, wood costs account for asmaller share of total costs, notably because of high capital costs. Because thetechnology is broadly similar throughout the world, however, wood cost is one of themeans whereby individual companies seek to gain a comparative advantage. To someextent, therefore, the price trend of paper and paperboard also followed that of industrialroundwood during the last three decades of the 20th century (fig. 36). The strong riseafter 1973 was due to high energy costs that declined subsequently.
The prices of paper and paperboard projected with the GFPM and under the ATLagreement remain stable or increase slightly from 1997 to 2010. The price trendcorresponds to the raw material price trend, dampened by the increased use of wastepaper and other fiber pulp in paper and paperboard production worldwide and in Asiaparticularly.
Figure 36—Real world prices of paper and paperboard.
The detailed effects of the ATL agreement, by individual product and country are in theappendixes (see footnote 1). Tables 7 through 26 summarize the effects for the world, itsmain regions, and the developed and developing group of countries.
As shown in tables 7 through 11, the world consumption of forest products wouldchange little because of the ATL agreement. The largest relative change at world levelwould be in industrial roundwood, a 0.4-percent increase. This would be tied, in part, toan increase of industrial roundwood consumption of about 1 percent in the UnitedStates. Changes in the United States would be negligible for all other products.
The effects of the ATL on world production are the same as on world consumption, asthey should (see tables 12 through 16). The slight discrepancies between worldproduction and consumption are due to errors in trade statistics, which are maintainedconstant throughout the projections. In the United States, there would be practically noeffect on production. The main changes in the United States would be a 3-percentincrease in sawnwood production under ATL, and a decrease of 2 percent in panelproduction. Production of other products in the United States would be unchanged.
The effects of the ATL agreement would be much more important on trade, in relativeterms than on consumption and production. As shown in tables 17 through 21, worldimports of industrial roundwood would decrease by about 5.5 percent under ATL. Themain decrease (10 percent) would occur in Asia, mostly in Japan as shown by data inthe appendixes. The United States imports of industrial roundwood would be unaffectedby the agreement. World imports of all manufacture products would increase under theATL. World sawnwood and panels imports would rise by 5 to 6 percent, and those of pulpand paper by 1 to 2 percent. United States imports of sawnwood would decrease byabout 8 percent, whereas those of pulp and paper would decrease by 3 to 4 percent. Theonly increase in U.S. imports would be in wood-based panels, but it would be substantialat nearly 15 percent.
At the world level, the effects of the ATL agreement on exports would be the same ason imports, as they should, after adjustment for the discrepancies in import and exportstatistics. The distribution of the changes by region, however, considerably differs. Inparticular, whereas U.S. exports of industrial roundwood were unaffected by the ATL,exports decreased by 35 percent. The major roundwood exporter, the former U.S.S.R.,also would see its exports of industrial roundwood decrease by about 13 percent.Instead, exports of sawnwood and panels from the U.S. would increase by 5 percent and1 percent, respectively. Uunited States. exports of wood pulp would drop by 1 percent,whereas exports of paper and paperboard would remain unchanged. The main gains inexports, in relative terms, would occur in Asia, and to a lesser extent in Europe.
Consumption
Production
Imports
Exports
49
50
Preparation of this report was supported in part by the U.S. Department of Agriculture,Forest Service, Pacific Northwest Research Station, McIntire-Stennis grant N946, andthe School of Natural Resources, University of Wisconsin, Madison. The researchassistance of Wen-Shiuan Chao, Chia-Sheng Liu, and Bintang Simangunsong are alsogratefully acknowledged.
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Ince, P.J. 1994. Recycling and long-range timber outlook. Gen. Tech. Rep. RM-GTR-242.Fort Collins, CO: U.S. Department of Agriculture, Forest Service, Rocky MountainResearch Station. 23 p.
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51
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Zhu-1
Appendixes 1–4 The following tables accompany Research Paper PNW-RP-534 “Global Effects of Accelerated Tariff Liberalization in the Forest Products Sector to 2010” by Zhu and others (2001). Authors are responsible for content and accuracy. Appendix 1: Consumption Effects of Accelerated Tariff Liberalization
Agreement, 1997–2010 Appendix 2: Production Effects of Accelerated Tariff Liberalization